GroupOn – Strategic Analysis

GroupOn , Is it a marketing company?
Is it a cash lending firm for small businesses?Is it a discount deal provider or is it just an accounting ponzi scheme? There are endless debates and many analysts crunch the numbers to come up with innovative ratios like marketing spend growth to top line growth, refund liability Vs gross billings etc. With due respect to all analyst views, this article will be more at a business level– looking at their value proposition, what went wrong, GroupOn’s emerging business model, their acquisitions and my view on where the company is heading to.

GroupOn’s value proposition to merchants is simple. GroupOn will bring in large number of new customers, which would have not been otherwise accessible for small local businesses and convert a good percentage of them into repeat customers and there by justifying the deep discounts provided merchants to acquire customers. Everyone knew how fast the company grew in its initial stage, but certainly their business model was not sustainable and lacked USP. It was easily replicable with no/limited entry barriers; currently there are over 250 deal providers/aggregators in U.S alone. In the world of “Big data”, GroupOn has leveraged its data to provide valuable insights to merchants nor measured whether it brought in repeat customers or just one time price shoppers.

After running a GroupOn deal, 82% of businesses said they were not satisfied with the outcome, 32% of merchants said their daily deals were unprofitable. When merchants don’t see a clear value the attractive circle could turn into a vicious circle.
less merchants signed up-> less inventory of deals -> unsatisfied customers -> less data to mine -> Investors loose confidence -> company focus more on addressing stock price by taking quick and non sustainable solutions -> goes into a negative spiral